Core Labs 2Q17 Earnings Call Notes

David Demshur – CEO

Increasing interest in enhanced recovery from shale reservoirs

“The first major trend is the increasing client interest in enhanced oil recovery from unconventional reservoirs. Early work performed by Core has indicated possible recoveries increasing from an average of about 9% in share reservoirs to 13% to 15% by utilizing engineered gas absorption techniques, gas recycling and the laws of physics and thermodynamics”

Using micro proppants

“The second major trend is the interest in using finer proppants or micro proppants in the initial procedures in a hydraulic fracture program. Core via our industry wide profit consortia with a 30 plus year history and consisting of over 40 companies is boosting its evaluation of 100, 200 and 400 non-API mesh sand. These macro proppants are thoughts to open secondary and tertiary fracture patterns significantly increasing the stimulated reservoir volume. Therefore, increasing initial flow rates as well as the estimated ultimate recovery from the wellbore.”

Lateral length may have reached their maximum

“The third major trend is that lateral length may have reached their maximum owing to frictional forces of pumping the frac fluid and its profit. However, Core is currently testing friction reduction additives to once again allow for longer laterals. Pad drilling and completion programs rule today and are causing the recent disconnect in wells drilled and wells completed in the last two quarters. Wells drilled and completions will start to mirror each other in the second half of 2017.”

10k feet appears to be the maximum

“right now the average lateral length is about 10,000 feet. That expanded from number of years ago from an average of 7,000 -8,000 feet. The problem is the frictional forces in pumping the proppant and fluid at or about 10,000 feet. You don’t get enough effective pressure to actually do a good job in fracturing the reservoir. ”

Can’t continue to outspend free cash flow. Markets will be tighter this time around

“I think we stay in a $45 to $50 environment. You are going to have a number of the private operators probably laid down some rigs. So we wouldn’t be surprised if we saw a contraction in the rig count by maybe 50 to 100 rigs by the end of the year. That’s kind of what our guidance is based on where we toned down what the expectation for revenue was for Q3. And it’s based on a flat to possibly down rig count. They can’t continue to outspend their free cash flow because in our view the equity markets and the debt markets will be much tighter this time around than maybe year or year and half ago”

Dick Bergmark

If crude persists below $50 rig count may contract in the second half

“If crude persists below $50 per barrel, the U.S. land-based rig count may actually contract in the second half as we do not believe operators can continue to outspend free cash flow with debt and equity markets likely closed to them for additional capital. This observation is not withstanding the continual decline in the global crude oil inventories and the impact this will have once the decline falls below the five-year average inventory level.”

Increasing number of DUCs because of a shortage of equipment

“Further, in the U.S., We are experiencing the impact of the prevailing market and transitory industry issues of U.S. labor and completion equipment shortages, which is expected to continue through year-end. The increasing number of DUCs, as reported by the EIA throughout 2017, is evidence that completions have not been able to keep up with the pace of drilling. The shortage of equipment is an issue for operators getting crews to complete wells which are why DUCs went up. Many EMP analysts wrote about this as the issue became more problematic as quarter went on. The pressure pumpers spoke about this in their own vernacular on the recent calls. The reason they are bringing equipment of out of cold stock is because they are short spread. They wouldn’t be spinning money to bring them out of storages if they were not short equipment”

TAG Oil’s (TAOIF) Q4 2017

Toby Pierce – CEO

They chose equity to debt for a reason

“As we looked at all the options, and specifically in March timeframe when prices were – oil prices were more robust, they were in the $55 a barrel Brent range. We anticipated the market to stay flat or oil prices to stay about mind you or they increase and obviously we were wrong on that point. So we are actually quite happy that we use that raised equity instead of debt. Debt in an oil and gas company can be very detrimental if you get the timing wrong. In addition, I have to say you definitely need to hedge out any depositions. Most reserves based lenders and most debt providers will require you to hedge out a portion if not all of the debt and that can make, that sort of sets your price and your price floor, so you don’t get to experience the upside in the oil price if you hedge out. We took the opportunity at the time to raise capital to focus on incremental drilling and to really get our cost per barrel down and so move the oil company forward.”

On acquisitions

“Are we going to do more acquisitions? It’s very hard to say. It’s a great deal presents itself. We’ll definitely consider it. In this type of market and sideways market, more distressed sellers may occur, may emerge. And we do have our sights on two or three, but we’re very patient and we’re not going to over pay”

He sees oil prices rising on supply crunches

“my personal view is we will probably edge back in the $60 range by the end of calendar 2017. I think it will be in the high 50s, low 60s….the amount of capital that’s actually come out of spending programs, globally depends on who you read, but its on the order of $1 trillion to $2 trillion, and that capital is not being reinvested in. It will start to cause declines with some point. So while we do have production growth in the Permian and it’s a fantastic resource, I do believe that the supply and other things will have a supply crunch at some point and we’ll see high oil prices. “

Apache 4Q16 Earnings Call Notes

John J. Christmann

Stephen Riney

Hedged oil price at $50

“Over the past several weeks, we have entered into put option contracts providing a floor of $50 WTI and $51 Brent for most of our second half 2017 oil production. With this protection in place, we will move forward with our Permian Basin capital program knowing that any price weakness will not cause a funding shortfall. We chose to use put options to mitigate the risk, while maintaining full exposure to upside price potential.”

EOG 4Q16 Earnings Call Notes

William Thomas

Starting to see some encouraging signs on inventory drawdown

“Scott, I think we’re watching the oil market, particularly inventory levels. And I think just in the last week or so, we’re starting to see very encouraging signs on inventory drawdown, and I think we’re getting close. It won’t be in the next month or two. I think we’re going to know a lot about how the OPEC cuts have affected supply/demand dynamics and the drawdown of that inventory. So we’re about there, but we just need a little bit more time on that. I think the other thing is, with the rapid ramp-up of drilling rigs in the U.S., we don’t want to ramp up too rapidly to decrease the capital efficiency. So we’re very committed to keeping the capital efficiency of the company extremely high, and we really only want to increase the capital efficiency. So part of our ramp-up strategy will be certainly to stay very disciplined, to allocate the capital to obviously the highest return investments that we have, and then do it in a systematic manner where we’re bringing in really good equipment, really good people, and we don’t lose performance there.”

Anadarko Petroleum 4Q16 Earnings Call Notes

RA Walker

Oil could average $60 in 2017

“From a global perspective, we’re beginning to see some encouraging demand improvements and supportive supply actions. And I continue to feel strongly that we have very good chance to see an average WTI oil price in 2017 of $60. When you combine our cash position with improving cash flows, we expect to be in an advantageous position to fund growth in both the Delaware and the DJ as well as the deepwater.”

Allocating to the DJ and Delaware

“As you look at us today, to be somewhat repetitive, I think the Delaware, the DJ, and the deepwater Gulf of Mexico, in that order of priority, will receive capital. As I mentioned in my prepared remarks, we have built a very attractive cash position, which we believe will allow us to execute on the development plans we have for the two primarily – the two onshore assets rather. And I think while we are very proud of them, I’m not sure there are any other assets onshore that are any better than the DJ and the Delaware to be allocating capital to.”

Doing a lot of planning for 2018, 19

“I will say, whether it’s the deepwater or it’s the onshore, 2017 is a year in which we’re doing a lot of things to prepare ourselves for 2018 and 2019. And that’s one thing as we come out of a trough, we just can’t immediately turn on a dime and expect that we’re going to go back to where we were before we went through the period of the last two years where the industry in general spent a lot less capital and had a lot less activity. ”

You’re not going to get a tremendous supply response until 2018, 19

“The only thing that I would say that’s a little surprising to me would have been that, if you recall, I thought domestic oil production in the U.S. would probably bounce off 8 million barrels a day, and we actually bounced a little higher than that. But I think – I use our own company as a bit of an analogy for this comment. I don’t think even with the rigs that are all starting to stand up, particularly in the Permian, and if you look even at what ExxonMobil has said about it this week, you couple that together, and it’s not like in 2017 you’re going to see a tremendous supply response that will dwarf the improving demand. I think that’s really more something to look at in 2018 and 2019. And it’s a little fuzzier when you look into the crystal ball at that point.”

EOG 3Q16 Earnings Call Notes

EOG Resources’ (EOG) CEO William Thomas on Q3 2016 Results

Bill Thomas

Oil in the 40s not enough to sustain production growth

” Over the long-term we believe oil in the 40s will not sustain enough production to meet demand worldwide. While EOG can deliver strong oil growth within cash flow with $50 oil, we believe that US industry as a whole needs to sustain $60 oil prices and extended lead time to provide a moderate level of growth. Worldwide Base decline rates are slowly reducing supply and consensus view is the current large inventory overhang could return to normal levels by late 2017.”

Apache 3Q16 Earnings Call Notes

Apache (APA) Q3 2016 Results
John Christmann

Alpine High

“Now I would like to spend a few minutes discussing our Alpine High play. The Alpine High is an immense resource and a transformational discovery for Apache. We have invested a significant amount of human and financial capital through two years of extensive geologic and geophysical work and reservoir and fluid analysis. This was accompanied by concept testing an initial round of verification wells, the results of which we disclosed in early September. We are now engaged in a methodical appraisal and delineation program to confirm the geographic and stratigraphic extent of the play and to formulate our long-term infrastructure plan. This work will continue for the next several quarters before transitioning to an active development program once gas processing and transportation infrastructure is in place.”

Egypt is doing the right things

“In regards to Egypt, Brian, having just gotten back from there the week before last, and my third trip over there, I’ve actually seen President Al-Sisi twice this year. I’ve got to give them a lot of credit. They’re on the right path. They’re doing the right things. They’re in the process of securing a loan from the IMF. This is all part of a process to go through and start to take some of the subsidies out and do the things to put the country onto the right track. So I actually feel very good about where things are. Our relationship is good. I think they understand how important Apache is. So we feel very good about that aspect of it. They’ve just got to go through a reset. And the good news is they’re taking this head on and they’re working on doing that.”

Capital plan depends on what price we’re going to use

“What I would say is Alpine is going to get its capital. We’re going to invest to sustain North Sea and Egypt. Permian is going to get a big chunk of its capital. And then how that pie changes is going to be a function of what price deck we’re comfortable running with and how much capital we pour. So we’ve seen a lot of volatility. We’ve gone from the low $50s to the mid-$40s. And so obviously every $5 of oil price and the movement of gas price means a lot to us in terms of that. So as we start out 2017, a lot of that’s just going to hinge on what price we’ve got we feel comfortable using.”

Stephen Riney

Egypt going through a tough time

“And then, just as a general rule, on a day-to-day basis, we generally hold a pretty minimal amount of Egyptian pounds at any one point in time. And just as an example, at September 30 we had a little over $50,000 worth of Egyptian pounds on hand. So the actual exposure to the Egyptian pound in a direct financial basis is pretty minimal. Of course, the more macro issue is that Egypt is going through a very difficult time. They’re doing all of the right things, but it’s going to be very difficult, and it’s going to be tough on the economy, and we obviously keep a very close eye on that.”

Anadarko 3Q16 Earnings Call Notes

Anadarko Petroleum (APC) Q3 2016 Results
R. A. Walker

Price conducive to completing drilled but not completed wells

“s we move through this, we’re moving into a higher price environment. We think fundamentally oil should continue to see improvement in the quarters ahead. As a result, you’ll see us continue to work more to a, I’ll call it a working inventory level of drilled but uncompleteds. Not an abnormal level of that, because I think as each of the people on this call I know quite well, we have an ongoing sort of like working capital position with respect to drilled uncompleted locations. So it’s not like they’ll be completely eliminated. But I think given the price environment that we see ourselves in today and projected in the coming quarters, we’ll convert more as appropriate of that current inventory into completions. But it’s not a marked change. I think it’s just what we’ve been trying to say through the course of the year that we will at the appropriate time start to convert our drilled uncompleted locations into opportunities for production. ”

$46, $47 oil shouldn’t change investment strategy

“You know, Brian, I don’t think it will really affect the principal investing strategies that we’re talking about this morning. I don’t mean to sound like a broken record, but it’s going to be Delaware, DJ and Deepwater Gulf of Mexico that’s going to take on the lion’s share our capital. And let’s call it a fairly static or ceteris paribus environment for operating conditions. So consequently, our ability to put more capital to work either through cash flow or through cash on hand – we have a lot of flexibility. I’m real proud of what Bob Gwin and what our corporate development folks working with our asset teams have been able to accomplish with the monetizations we’ve achieved to date and things that we hope to do in the future.”

Not out drilling opportunities in the gulf

“In the Gulf today, given the price environment that we’re in, if we don’t have tie back to existing infrastructure, we’re not out trying to drill opportunities that require greenfield development as a result. So that may be where the two are a little bit different because we’re dealing with a much higher cost per well. Typically, we’re in a pre-salt environment with the exploration opportunities, whereas in many cases internationally, we’re post salt where the cost to drill a well is substantially less, and so therefore, if we’re successful, the development drilling associated with any development opportunity is a little more economically positive from the standpoint of the price environment. ”

You should start to see production rising next year

“as we stand up more rigs and we bring more wells online, you’re going to see that turn again and you should start seeing our oil production go up. It may not be by year-end or even first quarter, but I think we would anticipate next year to reverse that trend and you’ll see the oil production start rising again.”

I’ve been a natural gas bear for a while

“Well you know, I’ve been a natural gas bear for quite a while. I think we always thought that gas would find its way up around $3 and it would find a ceiling there. And to a large extent, that’s been correct. I mean we’ve always believed around $3, that there was just an impediment from a demand standpoint for now. But I think it also was a reason a lot of people in January, when we talked about selling our natural gas properties, and people kind of looked at me cross-eyed that we would actually have a market for it. And there’s been a lot of very successful private equity people that have taken a view on natural gas and have done quite well with it. I think for a company like ours, that has the assets that we do and our access to oil and liquids that we do, consequently, it’s not really in our best interest to pursue natural gas. It doesn’t give us the same wellhead margin. It doesn’t give us the same ability to have scalability. And the returns, coupled with the scalability, just always tilt in the favor of the DJ and the Delaware for us. John, I just have to say, I don’t mind being wrong. But I think our view is that it would take natural gas to approach $6 before it would probably displace our interest investing in oil. And I don’t see that happening.”

Anadarko 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Record North America production growth

“In the quarter Anadarko delivered record U.S. onshore growth on a same-store sales basis by growing year-over-year U.S. onshore volumes by an incredible 117,000 BOE per day”

Seeing success in excess of expectations

“we have another significant emerging oil opportunity in the Wolfcamp Shale and the Delaware Basin in West Texas. Our ongoing development program has been very successful to-date and we’re working to optimize spacing, lateral lengths and completion designs. We’re also further evaluating the resource potential of our 600,000 gross acre land position due to success outside our previously defined high confidence area and well performance significantly exceeding early expectations for the production of high margin oil.”

Share knowledge across the organization

“one of the reasons we’ve been so effective, if you hear recently in the Wattenberg as we’ve taken the learning from the Eagle Ford and other places where we’ve had success but lot of learnings from the Eagle Ford were applied to the Wattenberg, because Chuck creates such a great environment for that exchange to occur between these groups and people certainly have the right incentive to share those. And so even for a company as large as our, we don’t get into the towers of knowledge and don’t share it. And it’s easy to say and hard to do”

Not surprisingly, a positive long term outlook for oil markets

” I’d say our early outlook particular like the international benchmark for Brent remains strong, market is tight their capacity is low, supplier outages are pretty strong the 3 million barrels a day and demand growth is returning to long term trends.”

EOG at Sanford Bernstein Conference

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

First movers in shale by 3-4 years

“I think what has really driven the company in the last four to five years is that we were first movers in shifting from gas to oil. And we were the first movers by literally three or four years ahead of the industry.”

Focused on growing by exploration, not acquisition

“We decided to do that years’ ago instead of growing the company, the typical way by acquisitions and mergers, we have historically chosen to go through exploration. And we have grown the company organically. We internally generated all of our own prospects and go out and just capture the acreage at very little dollars, very nominal dollars on the front end side and we captured not only acreage of low cost but we actually are able to capture the sweet spot of these plays by being there first.”

Also pioneer their own completion technology

“The other thing the company is known for is being first movers or leaders in horizontal completion technology. And the company has very unique model in that. It’s not directly tied to the service industry. We supply our own materials for our fracs. We do all of our own internal frac designs technically. And that has given us an enormous lead on cost and well improvements”

Lots of reserves in the Eagle Ford, only drilled 17% of defined locations

“We did in our February call, we increased our Eagle Ford reserve potential by 45% and so its now gone from 2.2 billion barrels equivalent recoverable to 3.2 billion barrels that’s the third increase we have had in that field. And we now have 7200 defined locations. We drilled 1200 of those. And so we have 6000 remaining locations in those locations had a cut-off of 60% A tax rate of return or better. ”

Permian is nice, but not enough to maintain dramatic growth in oil production

“Permian is a great place to drill wells, it’s a lateral – tremendous amount of reverse potential. But it’s not the play quality, the rock quality and the technical aspects of the play are not nearly as strong as Eagle Ford or the Bakken. And it will not be able to maintain this dramatic growth rate that we have had historically in the country. And it will not be able to replace an Eagle Ford or a Bakken.”

A decentralized approach

“We have a very decentralized company. So we have nine operating divisions in North America and each one of those divisions has a very strong exploration group. So we are literally working every basin and every rock in North America at the same time.”

Have to be careful to move at the right speed

“Each one of these plays has a certain speed that is optimum speed in the time, the life of each of the fields…If you speed that up, you have – you could easily lose efficiencies and instead of reducing the well cost, you increase the well cost. And also, while you are completing all these wells, you are learning a whole lot, you are learning the rock, you are learning about the play, you are learning about the proper completion that you want to put on each one of these wells and that’s an ongoing process all the time and we are making significant advance until the time.”

“from the people side of it, you want to make sure you have top quality people and you have a very dedicated group of people and a very focused group of people to manage and to have discipline to do all this correctly.”

Probably not another Bakken or Eagleford out there

” think our thoughts are and we know all – we know the U.S. very, very intently. We did not see another Bakken or an Eagle Ford out there. That would be both the size of the field and the quality of the field together. That’s probably not one of those out there. And but we would love to find one, but we do have a very nice list of ongoing prospects and projects in different phases across the company that we are working on and we are optimistic that there are additional things that we will be able to bring forward”

Refinery system is adding capacity to refine US oil

“the refinery system, like this little bit lower cost, U.S. production and they are absorbing it very readily. They are adding additional capacity to refine this oil. And they continue to displace not only the light crudes but they are beginning to displace many of the medium grade crudes that are imported.”

You have to know something someone else doesn’t know to get a good price on acreage

“we have been able to continue to capture acreage at very low cost compared to what they end up being later down the road. And so you have to be upfront, you have to know something that somebody else doesn’t know. You have to just kind of do it in a stealthy manner.”

Drilling costs have come down so much that it doesn’t make sense to go back to old wells with new technology

“the way the industry has gone, the drilling cost on the well – to just get the well initially drilled has become a very small part of the total cost of the well. And its because the efficiency of the drilling has advanced so far that in total cost of the well, the drilling side is so small that really instead of trying to recomplete the well, its really I think more prudent to go in and just drill a new well and complete it correctly. And then you are assured of getting it technically done right and it’s kind of taking a fresh start, and just trying to fix something that weren’t done correctly.”

Really hard to make good returns in acquisitions, better to grow organically

“I think it’s very difficult to make money in an acquisition market. You have to place so much on the upfront. And it just makes the overall project very, very low return. And the company is fortunate I think that we will be able to continue to organically generate.”

Meaningful reduction in drilling below $90

“I think you would start seeing a meaningful reduction in oil drilling anything below $90 a barrel.”

Not focused on international because plenty of opportunity to grow in the US

“I think anything internationally whether the Mexico or some other place that EOG is really not actively pursuing any plays internationally and it’s because that we see an abundance of opportunity in particularly the U.S. And we are very focused on the U.S. and we think there is ample room there for us to continue to grow the company.”

Oversupply natural gas until 2017-2018 at least

“there is going to be more demand for gas down the road, it’s just a matter of timing on that hopefully by 2017, 2018 we will see some substantial demand increases.”